The E-Reader Cuts Its Throat More Deeply

September 1, 2010 by Douglas A. McIntyre

Border’s (NYSE: BGP) has cut the price of most of its e-readers as it tries to improve the tiny market share its has compared to the Amazon.com (NASDAQ: AMZN) Kindle and Barnes & Noble (NYSE: BKS) Nook. Border’s is so far behind in the race for a piece of this business that it may not matter how it prices its offerings. That is, unless, its move causes the competition to lower prices to protect their own positions.

The Border’s products are called the Koho and Aluratek “Libre” eBook Pro, names which are so obscure that it may hurt sales from the start. The embattled book retail firm will drop prices on the devices to between $129.99 and $99.99 on September 1  depending on features. “We’re committed to making it as easy as possible for all Borders customers to enjoy eReading,” said Mike Edwards, CEO of Borders. His problem is that his company may not be able to afford to sell the products at what is almost certainly a loss.

The competition has kept prices higher, for now. The Nook sells for between $199 and $149. The Amazon Kindle’s prices range is $139 to $189.

It is not surprising that industry experts believe that the margins on these devices are either very low or nonexistent. Business school professors frown on the notion that it is fine to “lose money on every sale and make up for it in volume.” That is the gamble that all the companies face as they adjust prices.

Low priced e-readers move the real competition to the e-books and e-magazines that each of these companies and Apple Inc (NASDAQ: AAPL) sell. The theory is that the industry will work much as the video game console business has since 2001. Microsoft (NASDAQ: MSFT) lost billions of dollars on its Xbox console. It reasoned that the real money was in video games and interactive products that would be sold for a fee. Its prices and features helped it gain on the Sony (NYSE: SNE) PlayStation. Microsoft now has a profitable video game division. Each of the e-reader marketers believes that it can charge high enough price on e-books to create a profitable system of hardware and content.

But there will not be several winners in the e-reader and e-book field. There may be one or two. Border’s may help force prices down, but with its tiny share of the industry, it hardly aids itself.

Douglas A. McIntyre